How to Buy a Short Sale Home

Hello Hampton Roads,

Before jumping right in to let you know how to buy a short sale home, it is important that we make sure everyone knows what a short sale is: a short sale is when the home owners are selling the home for less than what they currently owe on the mortgage.  The amount is “short” the mortgage amount, hence the name short sale. 

The reason for selling for less than the mortgage amount is because the current market value of the home will not support the mortgage amount and the home owners can longer afford to make payments and may be currently behind in payments.  In order to avoid a foreclosure, the sellers decide the sell the home as a short sale with the permission of their lender.   If the seller’s bank or lien holder doesn’t agree, then the short sale does not occur even though both the seller and buyer are willing.

Successful short sales tend to benefit all parties:
  • The sellers avoid the black mark of a foreclosure on their credit.
  • The sellers’ bank avoids a costly foreclosure.
  • The home buyer may acquire the property at a good value.
  • The neighborhood benefits from having the property properly maintained and cared for. 

So, let’s get into the process of buying a short sale!  (Note: If you would like to learn more about the process from a seller’s side, you can read about it here:  How Do Short Sales Work for Sellers?)   

As a buyer, when you buy a short sale home the price is always a consideration.  In order to get an offer quickly, the list price may be attractively low; sand many times it can be the lowest price in the neighborhood compared to similar homes.  However, it is important to know whether the short sale price is has been approved by the bank. Your real estate agent will be able to let you know this.  If it is an approved price, you can be assured that the bank will accept the agreed upon sales price.  If the short sale price is not approved, the agree-upon price will be submitted to the bank for approval and the bank can accept, reject, or counter. Once the bank agrees on a price that is the approved short sale price.

Generally when considering a short sale a buyer needs to be aware that the property is generally selling “as-is”, which means that the owner will make no repairs. This makes sense because usually the owner cannot afford to make payments or pay of the loan, so how can they afford to make repairs?  As a buyer you have a right to a home inspection, but knowing that the repairs would be your responsibility. 

Also, be aware that when considering how to buy a short sale home, it is important to understand that the typical home-buying timelines do not apply—usually, once a contract is ratified, it may take 30-45 days to close on a property. With a short sale the timeline is uncertain and in many cases the time frame is dependent on the bank, and each bank is a little bit different.   In our real estate business, we have seen short sales take from three to eight months to close and have heard of short sales taking over a year to close. Therefore, to consider buying a short sale make sure your timeline is flexible.

It is also important to be aware of how banks work regarding short sales and foreclosures. Typically short sales and foreclosures are handled in separate departments and have separate timelines. It is possible to be under contract on a short sale property and the property gets foreclosed before the short sale closing happens.

In summary, buying a short sale home entails being aware of the process including:
  1. Permission for the short sale itself as well as the final sales price must be obtain from the sellers’ bank.
  2. Short Sales are sold “AS IS” and all repairs, inspections, reports, are the responsibility of the buyer.
  3. The sales process can be prolonged depending on how quickly the bank responds.
  4. Foreclosure is a possibility if the short sale is not consummated in time. 

Buying a short sale home can be a source of terrific bargains to the home buyer who is willing to go through the process!  If you have specific questions or if would like to see what short sales are available in our market, please feel free to reach out to me! 

Thanks for Reading,

View Liz Schuyler- CDPE, SFR, e-PRO's profile on LinkedIn 

Serving your Hampton Roads and Virginia Beach Real Estate needs. Liz Schuyler on Google+


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